Property valuation is an area where so much rests on the professional advice surveyors give to their clients. RICS has therefore recently updated its Risk, liability and insurance in valuation work guidance note.
The purpose of this second edition is to assist valuers and their clients to understand the inherent risk in property valuation. This will enable both parties to manage it better, allowing valuers to make informed decisions as to clients’ use of the valuation, the scope of work required and its commercial pricing.
A number of stakeholders, including, clients, insurers and firms undertaking valuation work, identified concerns in the aftermath of the global financial crisis a decade ago. They suggested that, to ensure the sustainability of valuation as a professional service, improved understanding of the risk inherent in valuation work was needed among the profession and those procuring and relying on valuations.
The first edition of RICS’ Risk, liability and insurance in valuation work was published in 2013; the second iteration brings the guidance note up to date on market practice and case law, which have developed in the intervening years, and also provides greater focus on specific market sectors.
Principles and issues
While this is at times a highly technical and legalistic subject, the note summarises in straightforward terms the key principles and issues that need to be taken into account. In particular, it aims to provide a practical guide to the following:
- the courts’ approach to valuers’ liabilities
- the appropriate use of liability caps
- dealing with requests for parties other than the client to be able to rely on the valuation
- the terms of the valuation contract b professional indemnity insurance (PII)
- dispute resolution.
Recognising that some of the issues differ across market sectors, three new appendices have been included, covering:
- residential valuations and building surveys
- valuations for commercial lending
- valuations for investment funds and public offerings.
The availability of professional valuation services is central to the effective functioning of the economy. Enabling valuers and clients alike to have proper regard to the risk entailed in valuation will help to ensure the long-term provision of the service, backed by PII, and most importantly that future problems are avoided.
Andrew Gooding is Partner, Valuation & Advisory at Knight Frank LLP. Article first published in RICS Property Journal July-August 2018.
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